Fed’s Rosengren backs bond buying through ’13 to lift growth

Federal Reserve Bank of Boston President Eric Rosengren said he wants to continue the central bank’s bond purchases through year’s end and raise or lower the pace in response to economic data.

Fed policy should pursue “faster economic growth and a more rapid improvement in the unemployment rate,” Rosengren said in the text of remarks prepared for delivery in Manchester, New Hampshire. “We should continue our large-scale asset purchases of Treasury and mortgage-backed securities through this year -- although the amount may need to be adjusted up or down, depending on how the economic situation evolves.”

Rosengren, who votes on monetary policy this year, has supported the central bank’s monthly purchases of $85 billion in Treasuries and mortgage-backed securities as a means to try to bring down 7.7% unemployment. The Fed previously bought $2.3 trillion of assets in two earlier quantitative-easing programs.

Fed Chairman Ben S. Bernanke said last week the central bank would alter monthly buying in response to gains in the job market, underscoring a need for flexibility. He said further gains would be needed to be sure “this is not a temporary improvement.”

‘Slightly Better’

While recent economic reports have been slightly better than expected, the U.S. economy may grow at a rate of “a bit above 2%” in the first half of this year, Rosengren said to the Business and Industry Association of New Hampshire and the state’s bankers’ association. He said the benefits of the bond-buying program outweigh the costs, and minimized concerns that the Fed’s record-high balance sheet would spur inflation or cause financial instability.

“Fiscal austerity has been offset in part by improvements in housing and also auto sales,” he said. “Housing and autos are the most interest-sensitive components of GDP, and their strength partly reflects the positive impact of Federal Reserve policies to push long-term interest rates down with our large- scale asset purchase program.”

Fed policy makers expect U.S. unemployment to fall to 6.9% to 7.6% by the fourth quarter, and Rosengren said his forecast was for “just above the midpoint” of 7.25%. Despite the progress, unemployment remains “far higher” than the 5.25% rate the economy is likely to return to over time, he said.